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LONDON (Alliance News) - UK stocks continue their recent run of falls mid-morning Thursday, following a heavy fall in Chinese stock market and while investors continue to pick apart the minutes from the US Federal Reserve from Wednesday.
The FTSE 100 trades down 0.5% at 6,371.73, the FTSE 250 is down 0.8% at 17,267.28, and the AIM All-Share is down 0.4% at 744.81.
In Europe, the CAC 40 in Paris is down 0.9% and the DAX 30 in Frankfurt is down 1.1%.
China shares plunged on Thursday with the benchmark Shanghai Composite Index falling 3.4% to 3,664.291 points, while the Hang Seng in Hong Kong fell 1.8% to 22,757.47, having touched its lowest level of 2015. The falls came on the back of continuing concerns about China's economy despite another round of cash injections by People's Bank of China.
Furthermore, uncertainty over the implications of China's yuan devaluation lingers despite the country's central bank setting the yuan midpoint once again marginally higher than the prior setting.
Meanwhile, the International Monetary Fund signalled that it won't add the yuan to its basket of reserve currencies for at least a year, giving markets more time to adjust to the possible addition of China's yuan as part of a review of global reserve currencies.
The minutes of the July 28-29 Fed meeting revealed most members of the Federal Open Market Committee believed conditions for raising interest rates were approaching but not yet achieved. While meeting participants said the US labour market had improved notably since early this year, many saw scope for some further improvement. Some members also expressed concerns about the outlook for inflation and whether it would support an interest rate hike.
Notes from the meeting said that one member of the committee "indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgement to raise the target range." Overall, the panel "concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met."
Economists at Nomura say that the dominant view within the FOMC had been that the slowdown in growth and inflation was temporary and as the year went on, things would improve, but the latest minutes express some doubt about this. Nomura says the doubts reflect the fact that the recovery is incomplete with growth rates not back to rates seen in the second and third quarter of last year and languishing inflation.
"We thought that a December lift-off was the most likely option and we maintain that view. We believe that the doubts expressed in the Minutes imply that the probability of 'lift-off' at the September meeting has gone down materially, while the probability of lift-off in December or no interest rate increase this year has increased," Nomura says.
Crude oil prices extended overnight losses after data from the US Energy Information Administration showed Wednesday that crude oil stocks rose by 2.62 million barrels in the week ending August 15. Stocks were forecast to fall by 777,000 barrels.
West Texas Intermediate fell to a new six and a half year low on Wednesday at USD40.39 a barrel and currently trades at USD40.59 a barrel. Brent oil is also under pressure, hitting its lowest level since mid-January at USD46.33 a barrel, and currently trades at USD46.40 a barrel.
An initial payment of EUR13 billion has been transferred to the Greek government by the European Stability Mechanism, the agency reports. The payment was part of an initial EUR26 billion tranche approved by the ESM and is to be used for further financing needs. The remaining money will be distributed at a later point, also for financing needs, as well as to help with bank recapitalisation.
A number of media outlets are also reporting that Greece has subsequently made its EUR3.2 billion loan repayment to the European Central Bank.
On the domestic front, UK retail sales grew only marginally in July, data from the Office for National Statistics showed. Retail sales including auto fuel gained 0.1% month-on-month in July, but reversed a 0.1% drop in June. It was slower than the expected growth of 0.4%. On a yearly basis, retail sales including auto fuel advanced 4.2%, the same rate of growth as seen in June. Sales were expected to expand 4.4%.
Excluding fuel, retail sales increased 0.4% following a 0.3% drop seen a month ago and coming in line with expectations. Annual growth in sales excluding auto fuel improved to 4.3% in July, as expected, from 4.1% a month ago.
In the FTSE 250, Kaz Minerals is the best performer, with its shares up 17%. The miner's share price was given a boost after Kazakhstan said it will allow its currency to float freely, which saw the tenge devalue sharply against the dollar.
All of Kaz Minerals' operations are in Kazkakhstan, and the devaluation of the tenge will drive down costs at its operations, while sales are denominated in dollars. The recent devaluation in China and the decline in Russia's currency from ongoing sanctions also are significant to Kaz as both countries are major trading partners with Kazakhstan.
Kaz also said it swung to a tiny pretax profit in the first half of the year, despite the company's revenue being hampered by lower commodity prices and it saying the Bozshakol mine will not be commissioned on schedule before the end of the year due to the recent fire at the site. This has been pushed back until early 2016.
Rank Group is up 2.9% after it reported growth in profit in its recently-ended financial year, boosted by strong sales in its venues and digital businesses, and said that trading since the year-end has been in line with management expectations.
The bingo club and casino operator said pretax profit multiplied in the year ended June 30 to GBP74.5 million from GBP14.4 million the year before, as its revenue grew 4% to GBP738.3 million from GBP707.7 million, comprising 2% growth in venues revenue and 21% growth in digital.
Premier Oil trades 1.0% higher after its said it had agreed to amend its financial covenants out to mid-2017 to give it sufficient debt headroom whilst its continues developing its assets, alleviating concerns about its large debt pile.
The company said it is "well placed" financially through its unsecured debt structure but said it needed to manage its covenant headroom. Through production and lower general and administrative costs, which fell by around 30% year-on-year, the company said it had around USD400 million of covenant headroom at the end of June.
Deutsche Bank's Thomas Robinson says the covenant amendment will "increase investor confidence in Premier?s ability to access undrawn debt facilities, significantly reducing short-term balance sheet concerns."
The company also swung to a substantial pretax loss in the first half of 2015 on the back of impairment charges, a drop in production and lower oil prices.
Sill ahead in the economic calendar is the Confederation of British Industry Industrial Trends survey at 1100 BST. From the US there is initial and continuing jobless claims at 1330 BST, before Conference Board leading indicators, Philadelphia Fed manufacturing survey and existing home sales all at 1500 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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